Buying an apartment complex can be a fantastic way to earn some investment income. Multi-family properties are a great source of cash flow, as you can earn monthly rental income as well as potentially qualifying for some incentives when it comes time to file your taxes. However, if you opt to buy an apartment complex it’s imperative that you understand that there are some special considerations compared to buying a condo, for example.
No “for sale” sign
Very often, the owner of an apartment complex won’t place a for-sale sign on the lawn. Why? Because the sight of a for-sale sign on the lawn can put existing tenants on edge, which may cause them to pack up and move quickly to avoid the potential period of adjustment that comes with getting new landlords. This can result in a high vacancy rate, which then brings down the value of the property. What does that mean for you as a buyer? It means you likely won’t be able to drive around town and find out which complexes are for sale. Which brings me to my next point.
Use a broker
When you are searching for an investment property, it’s always best to search privately, and there are two ways to do this: you can either use a real estate broker or you can search online. If you go the online route, if you find something you are interested in, go for a drive to get a look at the outside of the property, the neighbourhood, the other tenants, etc. It’s a good idea to drive by once during the day and once at night so you get a complete picture of both the physical building itself and also the neighbourhood etc. when they aren’t expecting anyone to be there. From there, if you like what you see you should contact a broker to get them to take you inside for a closer look.
Crunch the numbers
Before you sign on the dotted line, you should be sure that the property you are considering actually is a good investment. Get as much info and you need about the rental amounts being charged as well as the operating expenses so you can get a clear picture of the potential net operating income you could earn from the property. This is particularly important for another reason, too. If you plan to get a multifamily mortgage, your lender will want to review the both the potential rental income and expenses so that they can calculate the debt-service ratio.
Get the inside scoop
It’s always a good idea to speak to existing tenants, or at least observe how the tenants treat the manager and how they interact with one another. Speak with some of the tenants, but don’t let on you are a potential buyer. Instead, act as though you are a potential tenant when you ask about things like the neighbours.